As international pressure persists for offshore financial jurisdictions to improve banking transparency, The Bahamas continues to take its compliance obligations very seriously, employing considerable resources to significantly enhance systems designed to detect and report suspicious money laundering activities.

“We believe that The Bahamas has in place a robust and effective anti-money laundering and countering the financing of terrorism (AML/CFT) framework, which includes a compendium of legislation and guidelines,” says Central Bank of The Bahamas governor Wendy Craigg.

Local laws relating to money laundering include the Financial Transactions Reporting Act, 2000, and Regulations made under the act which, together embody the standards to which financial institutions must adhere when confirming the identities of their customers.

Furthermore, there is the Financial Intelligence Unit Act, 2000, the Financial Intelligence (Transactions Reporting) Regulations, 2001, and the Anti-Terrorism Act, 2004. The Bahamas’ Financial Intelligence Unit (FIU) has issued guidelines on reporting of suspicious transactions. All financial sector regulators have also issued AML/CFT guidelines that address customer due diligence issues for financial institutions.

Know your customer
“The Bahamas’ AML/CFT framework requires financial institutions that are licensed or registered in the jurisdiction to conduct due diligence on their customers and to have in place adequate know-your-customer (KYC) policies and procedures,” says Craigg.

“For example, licensees of the Central Bank are required to apply their customer due diligence procedures on a risk sensitive basis,”?she explains. “This means that they should seek to have sufficient information about their clients to enable the financial institution to gauge how risky the client’s business is.”

In this regard, Craigg says, enquiries should cover whether the client’s business poses a normal, low, or high risk to the institution’s reputation. This risk factor analysis takes into consideration the jurisdiction in which the client’s business is based, the nature of the business and the client’s identity or position.

“To illustrate, a high ranking foreign government official would be regarded for AML/CFT purposes as a ‘politically exposed person’ and their business should be treated as high risk,”?says Craigg. “All customer account activities are required to be monitored by financial institutions, and customers who have been assessed as high risk should receive enhanced monitoring, to detect changes in their account activity and to determine whether that activity is consistent with information obtained from the client at the time the account was established.”

These, along with other measures, seek to maintain the integrity of this jurisdiction.

Under scrutiny
Over the past decade there’s been a surge of attention directed towards money laundering, with offshore financial institutions around the world coming under pressure to expand their anti-money laundering legislative framework and adopt international best practices.

Money laundering washes away a dirty money trail, masking the true source of income. The funds reappear in the market in a legitimate form. Hence the name, “money laundering.” Other times, an individual’s wealth may be legitimately gained, but the money laundering process helps hide huge sums in a bid to evade taxes.

According to the United States Internal Revenue Service (IRS), “money laundering creates an underground, untaxed economy that harms our country’s overall economic strength.”

Last year, the US waged an all out war to eradicate tax evasion. An IRS programme–designed to encourage American taxpayers to disclose previously hidden offshore accounts–prompted 14,000 Americans to come forward and settle unpaid taxes in exchange for leniency. The disclosures helped provide a road map for a crackdown on offshore tax havens, with the IRS subsequently opening criminal investigation offices in Beijing, Panama City and Sydney.

By 2013, the US government intends to implement new reporting requirements for offshore accounts that would penalize foreign banks for failing to disclose certain account information. Italy, France and Germany have also heightened their scrutiny and moved to prosecute banks and officials suspected of helping their citizens evade taxes.

Trusted advisor
A long established and leading offshore centre, The Bahamas has a proven track record as a trusted financial advisor. In carrying out its fiduciary duties, the Central Bank and other financial sector regulators conduct on-site inspections of the financial institutions, in order to test the adequacy of their AML/CFT policies and procedures.

“The Bahamas continuously reviews its AML/CFT framework to ensure on-going compliance with international standards, while maintaining a regulatory environment that is conducive to doing business in the jurisdiction,” says governor Craigg.

As a member of the Caribbean Financial Action Task Force (CFATF), The Bahamas’ anti-money laundering and countering the financing of terrorism regime has been the subject of peer reviews to assess compliance with the Financial Action Task Force’s 40 + 9 recommendations on money laundering prevention and countering of financing of terrorism. These peer reviews help to assist The Bahamas in improving its anti-money laundering and KYC framework.

Strictly confidential
Although bank secrecy may be decreasing, officials say the well-established confidentiality for those who live or conduct business in The Bahamas will continue.

“The Bahamas fully adopts the core principle of the United Nations that individuals have the right to privacy,” says Wendy Warren, chief executive officer and executive director of the Bahamas Financial Services Board (BFSB), an agency that represents and promotes all sectors of the financial services industry.

This right to privacy is supported through a number of measures. The Data Protection Act enshrines the manner in which client information is retained and shared. Furthermore, regulatory oversight ensures that financial institutions, which undertake rigorous due diligence on clients, maintain and handle client data according to agreed protocols. These protocols are in accordance with published law and policy.

“Where clients feel that their data has been mishandled there are avenues of redress through the courts,” Warren advises. “Moreover, this right of privacy is embodied in the tax information exchange agreements. Even after the government undertakes very careful screening of any request, an individual has the right to pursue avenues before the court to challenge sharing of any information.”